The ARQ Group Ltd (ASX: ARQ) share price has crashed lower following the release of its transformation update and full year outlook.
At the time of writing the Arq share price is down 32% to 88 cents.
What was in its update?
Arq Group is now 12 months into its 18-month transformation which aimed to progressively consolidate ten existing brands into two.
These are the Arq Group and Netregistry brands. The Arq Group brand is the company's premium digital services brand servicing the mid-market and above, whereas the Netregistry brand is a provider of complete online solutions to the small business market.
This morning the company announced the evolution of its organisational structure to reflect the merging of its brands.
The release explains that this includes a flattening and broadening of the current leadership which it believes will bring it much closer to its customers, streamline decision making, improve execution, and create a scalable organisation design that will support future growth.
Two senior roles have not been carried to the new structure, with those executives leaving the business.
Outlook update.
The company also provided an update on its outlook for the remainder of the financial year for both the group and its core operations.
Management believes that presenting its results in this way helps investors better understand the contribution from the Core or ongoing operations, and the historical contribution from the part of the business that is going to reduce materially due to potential divestments and the loss of a major customer contract.
According to the release, Arq Group expects to deliver group underlying EBITDA in the range of $22 million to $25.5 million for FY 2019.
Whereas, the Core Operations are expected to generate between $15.5 million and $18.5 million of underlying EBITDA, which is sharply lower than its previous guidance and down from $24.5 million in FY 2018.
In respect to its Core operations, management advised that its SMB division is exceeding expectations and is forecast to deliver underlying EBITDA in the range of $9.7 million to $10.7 million in FY 2019. This is the result of consistent growth in new solutions revenue and cost improvements from productivity initiatives.
However, offsetting this is the Enterprise division which has fallen short of expectations in the first half and is forecast to achieve underlying EBITDA in the range of $12 million to $14.5 million this year.
This compares to previous guidance of ~$24 million and is due to execution issues in Melbourne and unexpected delays in turning on revenue from new contracts.
Management sees this as a temporary challenge. Its recovery plan is well advanced for Melbourne and it is already seeing the first signs of improving performance. Furthermore, revenue from delayed contracts will shortly start coming online.
In light of its lower than expected earnings during the first half of FY 2019, Arq Group advised that it will not be declaring an interim dividend. The full year dividend will be reassessed in December in line with its stated dividend policy.
